Chapter 3 Notes

Chapter 3 Notes - Chapter 3 Notes Inflation o o Value of...

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Chapter 3 Notes - Inflation o Value of the dollar won’t have the purchasing power that it used to have o US’s debt is extraordinarily high Higher interest rate to be applied to us in the future if we are seen as a risky investment Risk and interest rate are flip sides of the same coin o Engineers care because we often make investments in R&D or company decisions with 5-10 years, so inflation affects us - Simple interest o Never really used in real world - Compound interest o Always make the assumption that we’re referencing compound interest - Equivalence o Interest rate at which 2 different cash flows are equivalent o When looking at economic analysis of engineering projects, once we understand the equivalence we have a common reference point – very helpful Current Events: 30 year interest rates have risen - Lot of government spending, we’re seeing a lot of new bonds being issued o If greater demand for treasuries, investors are willing to be satisfied with lower yield, so interest rates would go down o 30 year interest rates have gone up, which may be due to increasing market interest
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This note was uploaded on 03/28/2011 for the course ENGR 110 taught by Professor . during the Winter '10 term at UCLA.

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Chapter 3 Notes - Chapter 3 Notes Inflation o o Value of...

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